Free Space

American Satellite Corporation. Communications Satellite Corporation. GTE Satellite. Realities now. Not as spectacular as the first man in space; not as controversial as man on the moon—but existing and functioning. These companies and others are the precursors of a vast web of commerce in space. These companies have analyzed the future and have seen the profit potential in space commerce. Soon there will be many more, competing for rights to chunks of vacuum each a million cubic miles in volume. What is the nature of this future about which so few people have heard? What are the real barriers to a thriving free enterprise system in space? Come with me a short while to see what potential beauty—and bane—lie ahead.

THE REAL BEGINNING

Remember Telstar? Remember the first worldwide TV hookup, with the horses from Austria and marching guards from Britain? That was the real beginning; that was AT&T, gambling some of its resources on a possible future for itself. But it was not to be. The Congress of the United States and numerous public officials decreed that international communications was too important, too diplomatically sensitive, to be left in the hands of a single company like AT&T. [1,2] Thus was born Comsat—a quasi-public monopoly corporation—whose responsibility would be international communications by satellite. The Congressional charter gave Comsat a unique franchise, with a board of elite directors and a board of Congressional overseers. A complex formula was worked out in an attempt to assure an equitable distribution of public ownership in this monopoly franchise. That was a decade ago.

By 1965, some other companies had begun to notice the vacuum in domestic satellite communications, and developed plans to augment existing ground channels. In March 1966, American Broadcasting Company applied to the FCC for the appropriate permit, to launch its own satellites for domestic radio and TV broadcasting. The company estimated that such a service would save the networks $50 million per year.[3] But it was not to be. The FCC decreed that domestic satellite communications was too important to be developed without thorough study; thus came an eight year study and freeze on the launch of any private satellites for domestic U.S. communications. In the interim, the Soviet Union and Canada recognized the value of satellites for their own internal communications, and developed and launched the Molniya and Anik comsats, which are now operational.

What was the cause of the delay within the FCC? Aside from the normal delay time needed to define appropriate regulations and assign frequencies, there was a crucial power struggle going on within the bureau. The primary antagonistic concepts were: 1) AT&T is a monopoly and should not be allowed in space, as its size would give it an unfair advantage over any other company; 2) only a single company should be allowed such a franchise—the company to be determined by the FCC; 3) only those showing proper credentials should be allowed in space, for their own good—such credentials including a history of reliability, financial solvency, and an undefinable quality known only to the board members of FCC; 4) essentially any company should be allowed the privilege, within certain specific guidelines. Several times during the decade, the FCC placed a call for those companies which desired to place their own satellites in orbit, for the purpose of domestic communications. The last call, in 1970, received responses from Fairchild Hiller, RCA Globcom, Western Tele-communications, Western Union Telegraph, TelePrompter, an AT&T/Comsat consortium, a Hughes/GTE consortium, and a Microwave Communications/Lockheed consortium. [4]

With prodding from President Nixon's Office of Telecommunications, which called for a free arena in space,[5] the FCC finally bit the bullet in 1973 and declared space open to essentially any company which could show itself capable of sustained operations—so long as its plan was approved by the FCC. As a result, 1974 has seen the launch of this nation's first satellite for domestic communications: Westar. The satellite is owned by Western Union, which gambled that space would indeed be a free arena and began its product development well in advance of the 1973 decree. Others will follow.

But is this the end of bureaucratic infighting and petty bickering for control? What do you think?

Several years ago, Automated Marine International, funded by a consortium of private ship owners, performed a study to determine the feasibility (on all levels) of a ship-to-shore satellite communications net, which would drastically improve existing communications between land and ships at sea. [6] The conclusions of the study were very favorable, both from a service and a profit point of view, and plans were begun for development of a ship-to-shore system which would satisfy the needs of private shippers. But it was not to be. The various governments, within whose borders ground stations were to be located, decreed that such a system was too politically important to be left to the control of either private interests or some other government. There followed a series of meetings—this time between petty bureaucrats of many nations—to determine frequency assignments, operating and funding responsibilities, and division of control: to date, this series of meetings has lasted four years! And there is no agreement in sight. Nonetheless, Comsat—under the quasi-aegis of the U.S. Navy—has begun a development and manufacture program to launch its own ship-to-shore satellites. Whether or not Comsat will await international approval is uncertain at this time.

With such barriers, why are companies still eager to go into space? Consider the following:

• Satellites open entire new frequency bands, vital to efficient communications in areas plagued by congested bands.
• Satellites open new markets because of their inherently lower costs compared with existing ground lines. For example, Western Union expects to be able to reduce domestic rates, from $3000/month for AT&T lines, to $1000/month.[7]
• Most important of all, satellites offer high profit potential. Total cost for two Western Union satellites ["cost," unless otherwise stated, includes launch vehicle, preparation for launch, and any overhead the satellite manufacturer includes in his bid] and five earth stations will be about $70 million. The company expects $20 million annual revenue, and 18 percent profit before tax.[8] The ship-to-shore concept would require three satellites: one over the Atlantic with 10 voice-channel equivalents; one over the Pacific with 7.5; and one over the Indian Ocean with 5 channels. Cost for the satellites, four earth terminals, and associated access to the terminals would be $75 million, with operating costs (1974-1980) totalling $40 million. It would cost a ship $22,000 for 2-way voice and recorded message equipment. Using conservative market assumptions, revenue in the 1974-1980 period would total $258 million, yielding a profit of $45 million by the end of the seventh year, and a return on investment of 25 percent after the first 10 years. [9]

Before I go any further, please note two things. First, a satellite system does not have to be exorbitantly expensive, regardless of NASA's penchant for multi-billion dollar budgets; and second, continuing advance in state-of-art technology is driving user costs down. Thus it would seem that almost everyone can benefit from space operations.

NEAR-TERM APPLICATIONS, AND BARRIERS

Consider a few more realistic near-term applications to space, and the nature of the barrier.

Satellite broadcasting direct-to-home is completely within current technological capabilities. Such a service would cost the broadcasting company little more than existing broad-coverage methods, and would cost a home-user of the service only about $50 for a special receiving antenna about 1.5 meters square, pointed up instead of out. [10] Not only would the concept open a multitude of TV channels not now available, but it would also allow such services as direct home news input (instant newspapers), picturephones, and direct mailings from one location to another. The barrier? The FCC, of course, under pressure from networks who view this as a potentially serious fragmentation of their market; and the closed countries, which fear the effects of satellites beaming broadcasts—unjammable—into the homes of their citizens. Intense diplomatic maneuvering is taking place within the halls of the United Nations, as some countries strive to have such satellites outlawed before they become reality.

Another potential money-maker is the sensor satellite. There are now several companies which use planes to photograph land and water areas for agricultural, forestry, and real estate purposes. In many cases, such a service could be performed much more cheaply by satellite, which can sense wide areas in a short time without the constraints of weather or political boundaries. The primary problem? Competition from NASA. In 1969, a land resource company based in Texas (Remote Sensing, Inc.) began surveying routes for oil pipelines in uncharted Alaskan territory by plane. Its services were in demand, until one day its major customer—an oil company—found that NASA had begun the same type of survey, and was offering its data for free to anyone interested. What would you do?

Or the navigation satellite. Positional accuracy is particularly important with high speed planes flying over oceans, with air/sea rescue craft, and with oceanography research vessels. For example, because of navigational uncertainties, each plane flying over the North Atlantic is required to take with it a volume chunk of about 15,000 cubic miles to protect it from collision. No plane's volume chunk may impinge on another's. Greater navigational accuracy—which could be cheaply obtained with satellites—would safely permit smaller volumes of space surrounding each plane, and hence allow more flights on a given route, and shorter delay times. Such an increase in flight rates and efficiency would, according to one estimate, save airlines $46.5 million yearly over the North Atlantic alone. [11] The barrier? Not only has NASA assumed that it has the inherent right to provide such a service, but international bickering over common navigational frequencies, ownership, and operational responsibility has delayed implementation now for several years. The cost of such a system is certainly no problem. One operable system could cost on the order of $40 million. Technology is also no barrier, as the U.S. Navy has had operational high quality "navsats" for years. The problem is—what to do with those free-funded agencies and self-serving bureaucrats who are making devastating assumptions based on recent tradition—the tradition of state control over that which is deemed "vital."

In short, there is a well-defined market need now for the services which communications, sensor, and navigation satellites can offer. Cost to the user would be as cheap as or less expensive than currently available alternatives, and the resultant services would be far superior. Profit projections appear to be quite healthy. The primary barriers to implementation, over and over again, are governmental regulation and intervention in the areas of potential application. A company cannot make rational plans if it is required to wait an indeterminate time before it is allowed to implement its plans—especially when such a delay allows its competition to both learn of its plans and to catch up with it technologically. Nor can a company compete with a government agency which gives similar services to its customers for "free." Even the threat of such competition is usually sufficient to prevent a company from investing in long-term research and development to that particular end. This is the situation now.

INTERMEDIATE-TERM APPLICATIONS, AND HOPE

What of the intermediate-term, 1980 to 1995; is there any hope there?

By that time, manned space stations will probably become common. The emphasis in these stations will be primarily manufacturing, basic research, and medical research (today's Skylab is a precursor to such activities), because the environment of space offers unique advantages over Earth's environment. As technologies become more exotic, more and more processes use space conditions artificially induced in Earth laboratories. Consider for a moment what space offers: absolute vacuum; zero to ultra-low gravity; extreme thermal ranges; an entire spectrum of radiation; virtually unlimited volume; and an environment free of noise, vibrations, and dirt. Oh, some of these conditions can be duplicated on Earth but it costs money. And some parameters—such as zero gravity—can only be duplicated for extremely short duration.

Given a high enough cost to cancel Earth's environment, the idea of going to the real thing begins to make hard, economic sense. It's not only the obvious which makes economic sense. Take a look at many manufacturing processes of high quality materials on Earth, and you will find heavy investment in hot rolling, cold rolling, forging equipment, and so on. A complex quality product cannot be simply cast in Earth's one-G environment, since in the crucial liquid state, the various metals tend to separate from each other due to buoyancy factors. While this is purifying for the basic metal, it also leads to irregular solidification and crystallization, which means that castings become too weak for many applications. Hence the need to invest in expensive equipment to counter the effect of gravity on the material in its workable liquid state.[12] In space, one works directly with the "free-floating" liquid, which is pliable and easily susceptible to dimensional manipulation.

One also finds that many products which cannot even be made on Earth (such as mixtures of immiscible materials, fiber-reinforced metals, thin-walled perfect hollow spheres, etc.), can be made in space with relative ease. I have indicated in a research report[13] that there are a number of potential applications of manufacturing in space which could cost less than similar processes on Earth. In general, such products would be made attractive by either a very high value per weight of finished product (such as diamonds, vaccines, and viral pesticides), or a high annual production rate of a complex material (such as composite castings embedded with metal whiskers).

Where's the barrier? Where to begin?…Let's start with cost. If we're speaking as a completely private venture, we must consider not only our own space station, but also our own astronaut program, and even our own launcher vehicle. Take one look at NASA's figures for the Skylab and Space Shuttle, and shudder. Eight to 10 billion dollars for capital investment, plus subsequent operating costs. No self-respecting business would entertain such a program unless the risk of return on investment were negligible. Ah, but we have a reprieve, for NASA is willing to absorb all the capital costs of the Shuttle ($6 billion for five recoverable Orbiters), and will let us have it for $10.5 million per flight. With a maximum payload of 65,000 pounds, one Shuttle trip would cost about $160 per pound to orbit and back. Well, that's not too bad, considering that today's launch-to-orbit costs are in the neighborhood of $1000 per pound. Now how about the space station? Again, NASA is gracious to the point of perfection, and will offer us its station as a basic workshop, in which we can lease space. Or we can have NASA add a little factory module to the core station for $500 million. Again, a little better, but—oh yes, NASA requires control over launch and space activities, has a backlog of applicants with higher priority, and at least some of the information gained must be shared with the public, as this was a public-funded project you know. The gloom returns.

Of course there is an alternative. Have you heard of the launcher designed by the German firm Technologieforschung GmbH? No sophisticated sleek machine, this state-of-art launcher would require capital costs of $152 million for five nonrecoverable vehicles (capital cost of $30.4 million per vehicle would decline rapidly as more vehicles were produced) and a launch cost of something less than $200 per pound, for payloads of up to 25,000 pounds. [14] Not too unreasonable—but what about the station? When General Electric performed a cost analysis of one particular program, it landed on a total space factory cost of something less than $10 million (unmanned; manned could perhaps triple the cost), with operating costs approaching $10-15 million per year. [15] At the most, this comes to maybe $200 million for an entire launcher and space station program. Comsat was able to gain this amount of equity capital in one day through issue of stock.

There seems to be some discrepancy here. Eight billion versus two hundred million—both of which get some men into space and let them work on projects in space. What's happening?

COST: A PRIVATE VS. A PUBLIC ORGANIZATION ORGANIZATION

The causes of cost in a public agency such as NASA are quite complex, and any discussion such as this must simplify; but some viewpoints will suffice. Consider first that a private company's primary objective is profit. This means avoiding ventures for which there is no market, and minimizing costs to gain that profit. Thus, ideally, there is no backlog of expenses tied to projects which have a very low or no probability of returning those expenses from future sales; and there is a rational search for least cost/best value to maximize profit. Every institution needs appropriate feedback for its survival, and in the case of a private corporation, it's profit. Or return on investment. The company's success on this level determines its ability to raise future capital for future projects.

A public agency such as NASA, on the other hand, has completely different values. Yes, the scramble for money is still there, but the scramble is to a different tune. Normally, a project has three parameters of prime importance: Cost, Time, and Performance. NASA was formed (in 1958) with the explicit specific intent of "beating the Russians." The secondary purpose was to allow the country to retain superiority in matters of space activities. Thus both the intent and the charter of the organization focussed on Time and Performance—Cost be damned. Certainly there is some budgetary feedback, as Congress waxes and wanes with the moons, but their concern is not so much with an objective cost standard (on what basis does one determine the profitability of a Moon shot?), as it is with voter approval. Give the public a circus.…

So NASA grew up in an era of profligate funding, ready to spend anything so long as it "beat the Russians" to the Moon. What did this mean in real terms? I worked in a company directly involved with the Apollo project. It had a fascinating contract with NASA: for every person hired (up to a rather high level), NASA would pay this company an additional x dollars, regardless of the work to be performed. You guessed it—this company made its profit by hiring people, not by producing at efficient levels. (During this period, the president of the company performed a cost study on production of recreational vehicles, a business line it was considering entering. As the company was then set up, each vehicle would cost roughly $100,000 to build. A bit high.)

Such "Cost-Plus" contracts are now being phased out, but we still see NASA in a situation of having to justify and maintain its existence with some very visible projects, projects which would give the agency something more than the appearance of a small research satellite foundation. Hence the Shuttle. Hence its advanced and costly nature—once you've tasted the Moon, it becomes difficult to think small. It's an object lesson for a public agency: give Congress a fascinating dream, and the money will flow, albeit with an occasional snipe. Give Congress a mundane project, and it may well ask—why do it at all? Let private enterprise do it if they need it so badly.

In the past decade, NASA was highly concerned with Time (beat the Russians) and Performance (better than the Russians). Cost was the least important parameter. Now its concern is not so much with Time as with Performance—primarily in identifying projects to assure its survival, and in advancing technology. The level of funding, though, has been set by tradition and by a certain organizational method. The manner of funding has been set by governmental rules and feedback norms. Thus one should expect similar abstract objectives to cost more when performed by NASA than when performed on a free market basis.

A PSYCHOLOGICAL AND A LEGAL BARRIER

There are other barriers—some psychological, some legal. There are not too many companies attuned to the complexities of large space projects, and those that are have generally become quite accustomed to acting as the suppliers to NASA or DoD, given a secure production contract. One could say that most aerospace companies are no longer a part of the free enterprise system: they have become risk-averse to the point of demanding guaranteed loans (Lockheed, Boeing) or demanding contract cancellation when mismanagement produces cost overruns (Grumman). On a free market basis, one would not consider such companies competitive.

Then there is the question of property definition in space. A space station is a functioning, producing thing, just like a factory on Earth. The only difference is—on Earth, it exists within the boundaries of some state or country, hence is subject to the rules of that dominion. But just what is the status of property in space: could an Earth company treat its satellite as a multinational division in a tax-free zone? Or would it be legally tied to the Earth-bound corporation by some complex Earth law? Just settling on a definition could take years, for it could be argued that the country of sovereignty of a satellite is the country of 1) launch; 2) corporate headquarters; 3) registration; 4) primary assembly operations; or 5) owner's citizenship. On the other hand, the United Nations has begun to establish legal precedents for space as an autonomous arena, free from control by any nation. [16] Or for an even more complex problem: consider the situation of a space factory, which establishes its own corporate charter, and which manufactures for another space function—such as assembly of a station or vehicle for extra-terrestrial activities. (Such a function could become one of the prime catalysts for purposeful economic activity in space.) What country, then, could claim traditional sovereignty? Many would certainly try. And surely companies would be hesitant to risk great amounts of time and capital with this uncertainty looming in their future.

RESOLUTION TO ACT

But suppose you've resolved to work in the frontier of space, to take on the legal battles as they come. How would you go about doing it? The first thing to be determined is—to what extent, if any, does NASA have to become involved? This is important, as you probably would want maximum control over your own activities, and any dealings with NASA imply some infringement on your independence.

At first, at this stage, NASA must become involved, if only to launch your satellite. Comsat has done very well by contracting independently for its own satellites and launch vehicles, and then using NASA's Cape Canaveral facilities for launch. At this level, NASA controls only an insignificant portion of your project, much as Air Traffic Control at an airport.

Now if you're not a large company already, large enough to set up a separate division devoted to communications satellites, how do you proceed? One scenario could follow this event sequence.

• Establish a small service-oriented company. Such a company would not manufacture, but would serve as a broker between a potential customer and existing satellite and launcher manufacturers.
• Perform market analyses, to determine pertinent customer needs, and available technology.
• Determine relevant costs for various identified projects.
• Enter Phase I (Market Entry: Broker)
• Finance the initial projects: equity, or more likely, at this stage, sell the concept to the company which would potentially benefit from the space project.
• With sales in hand, negotiate contracts with satellite and launcher manufacturers.
• Negotiate with NASA for use of launch facilities.
• Launch and operate satellites as the market requires.
• Enter Phase II (Market Acceptance: Manufacturer)
• Assemble team for design and possible manufacture of satellites.
• Negotiate with NASA for options to use the Space Shuttle.
• Call for bids on minimal cost launch vehicle (high weight payload).
• Finance launch vehicle program—independently, or with a consortium of space corporations.
• Continue advanced satellite development; launch using NASA facilities.
• Enter Phase III (Market Stimulation: Systems Developer)
• Assemble team for design of high profit manned satellites.
• Assemble and train a team of astronauts.
• Sell manned satellite projects.
• Construct, or contract for construction of, manned space stations.
• Finance the manufacture/launch/operation of "mansats."
• Begin development of private launch facilities.
• Enter Phase IV (Market Leadership)

Thus it is possible to enter space relatively free of government control, at least on the pure business end. Now, what to do about those bothersome regulations and governmental competition. With some planning and persistence, even these may fall by the wayside.

Because the barriers are political, most of the action must take place on a political level. But to win, one must know what one wants in advance, identify the necessary goals, and follow a consistent strategy without compromise to political control. Because governments generally react to technological advances (rather than act in anticipation), it would be to the space corporation's advantage to take pro-active steps, to deal from a position of strength.

1. Define space property rights in a context of individual or corporate ownership.
2. Lobby in the U.S. for acceptance of this definition.
3. Using any means at hand, support the UN attempt to free space from national control.
4. Negotiate with NASA to preclude direct competition.
5. Sue any government agencies which use tax money to compete directly or indirectly with your projects. Assuming turnabout is fair play, consider suing on the basis of unfair competition and monopolistic exclusion from market.
6. Lobby in the U.S. for cancellation of NASA's utility-oriented space projects, such as the Shuttle. Use the SST precedent as one example. Redefine NASA as a basic research bureau only.
7. Ally with offices and bureaus (such as the Office of Telecommunications) which have established their own philosophic precedent of space as a free arena.
8. With each launch of your private satellite, publicly state its autonomous existence in Free Space.

One need not bewail the present for want of freedom. With purpose and a plan, it is quite possible to do battle with existing legal barriers, and still make a profit in space. The future can hold a beauty limited only by human imagination. The only question then remaining is—Would you like to come along?

Paul L. Siegler received his B.S. in physics from the University of New Hampshire and his MBA from Harvard Business School, where his dissertation topic was commercial utilization of space. Siegler served as a Titan II missile combat crew commander in the U.S. Air Force, and spent three years as a space mission planner for a large aerospace company. He is currently Acting Chairman of the Libertarian Party of Kentucky.

NOTES AND REFERENCES

[1 ] AVIATION WEEK, July 31, 1961. Edward Welsh, Executive Secretary of the National Aeronautics and Space council: "We can't have private companies shooting up rockets at will. This could start a war."
[2] AVIATION WEEK, Feb. 12, 1962. Comment by Representative Emanuel Cellar on President Kennedy's proposal for a publicly owned, government supervised comsat system: "The hand of monopoly [i.e. AT&T] now shall not be laid upon this system."
[3] AVIATION WEEK, April 7, 1969.
[4] AVIATION WEEK, March 22, 1971.
[5] AVIATION WEEK, Nov. 8, 1971. Statement from the Office of Telecommunications: "There is no evidence to indicate that selection of the successful operator(s) by the government is either necessary or preferable on public interest grounds to a marketplace determination. The cost of these systems is great, and investors will weigh their prospects carefully before making final commitments to systems without an adequate traffic base or competitive advantage."
[6] AVIATION WEEK, May 1, 1972.
[7] WALL STREET JOURNAL, March 21, 1973.
[8] AVIATION WEEK, Jan. 15, 1973.
[9] AVIATION WEEK, May 1, 1972.
[10] R.B. Marsten, "Operational Telecasting by Spacecraft After 1975," AMERICAN ASTRONAUTICAL SOCIETY PROCEEDINGS, Vol. 23 (1968).
[11] David Roese, "Satellite Navigation Aids for Transportation of the 1970's," AMERICAN ASTRONAUTICAL SOCIETY PROCEEDINGS, Vol. 23 (1968).
[12] Hans Wuenscher, "Manufacturing in Space-Zero and Low Gravity-Manufacturing in Orbit," MANUFACTURING TECHNOLOGY UNIQUE TO ZERO GRAVITY ENVIRONMENT, (NASA/MSFC), Nov. 1, 1968.
[13] Paul L. Siegler, COMMERCIAL UTILIZATION OF SPACE, June 1973.
[14] AVIATION WEEK, Jan. 24, 1972.
[15] Ulrich, Chung, Yan, and McCreight, ECONOMIC ANALYSIS OF CRYSTAL GROWTH IN SPACE, (General Electric Company).
[16] "Declaration of Legal Principles Governing the Activities of States in the Exploration and Use of Outer Space" (SPACE ACTIVITIES AND RESOURCES, United Nations, New York, 1972)—adopted at the 1280th General Assembly plenary meeting on December 13, 1963; reaffirmed at the 1499th plenary meeting on December 13, 1966:
"3. Outer Space and celestial bodies are not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.…"
Note, though, that subsequent articles in the Declaration hold each state liable for harmful or dangerous acts of satellites registered in those states. This could be used as a lever for regulation and control.